S. 9 IBC | UNCRYSTALLIZED DAMAGES FROM BREACH OF CONTRACT NOT OPERATIONAL DEBT: SUPREME COURT
BEFORE THE SUPREME COURT OF INDIA
Srinivasa Reddy Velagala v. Sravanthi Infratech Pvt. Ltd.
Civil Appeal No. 876 of 2021
Judgement Dated: 12 August 2026
Summary
The case concerned an EPC contract for setting up a 225 MW gas based power station. The respondent, the operational creditor, claimed unpaid milestone payments along with suspension and demobilisation charges and initiated proceedings under Section 9 of the IBC.
The Supreme Court held that the EPC contract had not come to an end merely because the work remained suspended. However, this did not mean that the respondent had a continuing cause of action for the unpaid amounts. The contractual milestone payments were operational debt, while the unadjudicated suspension and demobilisation charges were damages and could not be treated as operational debt.
Most importantly, the Court held that the Section 9 application was filed after the expiry of the limitation period. Mere continuation of the EPC contract or sending legal notices could not extend limitation. The NCLT and NCLAT orders were therefore set aside.
Facts
The appellant invited bids for setting up a 225 MW gas based combined cycle power station at Bikkavolu, Andhra Pradesh.
The respondent was awarded the contract for Rs. 827 crore through a Letter of Award dated 24.12.2010. An EPC agreement was subsequently executed on 09.02.2011, with completion contemplated within 14 months.
Under the payment schedule, payments were linked to different milestones. Although the respondent completed the first three milestones, the appellant paid only Rs. 50.15 crore, leaving substantial amounts unpaid.
Due to non-payment, the respondent issued a suspension notice on 30.07.2011 and stopped the EPC work.
The respondent subsequently sent legal notices dated 25.07.2014, 16.09.2014 and 15.07.2015, demanding its dues. The appellant did not respond to these notices. On 02.07.2018, the respondent issued a statutory demand notice under Section 8 of the IBC and later filed a Section 9 application on 12.10.2018.
The NCLT admitted the application on 13.12.2019. The NCLAT upheld the decision, mainly holding that the EPC contract continued to subsist and therefore the claim was not time-barred.
Issues:
The Supreme Court considered four main issues: Whether the EPC contract had been frustrated by efflux of time.
Whether the amounts claimed constituted operational debt under Section 5(21) of the IBC.
Whether there was a pre-existing dispute between the parties.
Whether the Section 9 application was barred by limitation.
Judgment:
On subsistence of the EPC contract:
The Court held that the contract continued to subsist because neither party had terminated it. The suspension of work was not an unforeseen event making performance impossible. Therefore, Section 56 of the Contract Act could not be invoked. The contract was not frustrated merely because time had passed.
On operational debt:
The Court distinguished between the different claims. Payments due under the contractual milestones were operational debt because they were consideration for the works performed. However, suspension, idling and demobilisation charges were in the nature of damages. Since they had not been adjudicated and crystallised by a competent court or arbitral tribunal, they could not be treated as operational debt under Section 5(21).
On pre-existing dispute:
The Court held that there was no pre-existing dispute. Although a dispute does not necessarily have to be pending before a court or arbitral tribunal, the appellant had remained completely silent in response to several legal notices and even the Section 8 demand notice. The defence was raised for the first time in response to the Section 9 application and was therefore treated as an afterthought.
On limitation:
This was the decisive issue. The Court held that the operational debt had become due and payable when the relevant defaults occurred, and the claim had crystallised by January and February 2012. The limitation period under Article 137 was three years.
The Court rejected the argument that the continued existence of the EPC contract created a continuing cause of action. A default occurs when a debt becomes due and is not paid. Sending subsequent legal notices does not restart limitation unless there is a written acknowledgment of liability under Section 18 of the Limitation Act.
Analysis
The main takeaway from the judgment is that a continuing contract does not necessarily mean a continuing cause of action for the purpose of IBC limitation.
The Court also made an important distinction between ordinary civil/arbitration proceedings and IBC proceedings. In some EPC disputes, a fresh right to sue may arise when the final bill is reconciled or the works are finally tested. However, for a Section 9 IBC application, the relevant question is when the default under Section 3(12) occurred. Paras 86 to 88.
IBC MORATORIUM AGAINST COMPANY DOESN'T BAR CONSUMER COMPLAINTS AGAINST PROMOTERS, DIRECTORS: SUPREME COURT
BEFORE THE SUPREME COURT OF INDIA
Tejas J. Shah & Amisha T. Shah & Ors. V. Mantri Technology Constellations Pvt. Ltd. & Ors.
Civil Appeal Nos. 4289-4290 of 2025
Judgement Dated: 27 July 2026
The judgment also reinforces that IBC proceedings cannot be used as a method of reviving a debt that has already become time barred.
Summary
The case concerned homebuyers who had filed a consumer complaint against the developer, its associated company, promoters/directors and landowners for non-delivery of their apartments.
During the pendency of the complaint, insolvency proceedings were initiated against the main developer and a moratorium under Section 14 of the IBC was imposed. The NCDRC consequently stopped the entire consumer complaint.
The Supreme Court held that the moratorium applies only to the corporate debtor. It does not automatically extend to promoters, directors, associated companies or other respondents. Therefore, the consumer complaint could continue against Respondent Nos. 2 to 7.
Facts:
The appellants were homebuyers who booked apartments in the Mantri Manyata Energia project, developed by Respondent No. 1, Mantri Technology Constellations Pvt. Ltd. Agreements were executed in 2016, under which possession was to be handed over by 31.12.2018.
Despite substantial payments, possession was not delivered within the agreed time. The homebuyers therefore filed Consumer Complaint No. 13 of 2023 before the NCDRC alleging deficiency in service and unfair trade practices against Respondent Nos. 1 to 7. During the pendency of the complaint, the NCLT admitted a Section 9 IBC application on 23.08.2024 against Respondent No. 1 and imposed a Section 14 moratorium.
The homebuyers then requested the NCDRC to continue the complaint against Respondent Nos. 2 to 7. The NCDRC rejected this request and adjourned the complaint sine die.
Issue:
Whether the Section 14 IBC moratorium imposed against the corporate debtor also prevented the consumer complaint from continuing against the other respondents who were not themselves subject to the moratorium.
Judgment:
The Supreme Court held that Section 14 moratorium operates only against the corporate debtor. It cannot be extended to other parties unless the law specifically provides for such protection.
The Court relied on decisions including P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd. and Ansal Crown Heights Flat Buyers Association v. Ansal Crown Infrabuild Pvt. Ltd., which recognise that the moratorium does not automatically protect directors, promoters and other persons.
SUPREME COURT HIGHLIGHTS CHALLENGES FACED BY SMALL OPERATIONAL CREDITORS AND MSMES, SUGGESTS LEGISLATIVE EXAMINATION OF REPAYMENT FRAMEWORK
BEFORE THE SUPREME COURT OF INDIA
M/s Tata Steel Ltd. v. Varsha & Anr.
CIVIL APPEAL Nos. 9052-9053 OF 2026
Judgement Dated: 17 July 2026
Summary:
The Court also held that the NCDRC had prematurely assumed that the alleged deficiency was attributable only to Respondent No. 1. Whether Respondent Nos. 2 to 7 were actually liable had to be decided after considering the pleadings and objections. That question could not be closed at the interlocutory stage.
The case concerned whether pending civil suits and arbitration proceedings relating to claims against Bhushan Steel Ltd. could continue after approval of its Resolution Plan under the IBC.
The Supreme Court held that once the Resolution Plan was approved, claims which had not crystallised and become determinable and quantifiable by that stage stood extinguished. The fact that such claims were pending before a civil court or arbitral tribunal did not allow them to continue after approval of the Resolution Plan.
The Court applied the clean slate/fresh start principle under the IBC and held that the successful resolution applicant cannot be exposed to uncertain claims after taking over the corporate debtor.
Facts:
Bhushan Steel Ltd. was undergoing CIRP. Before the CIRP:
Varsha, an operational creditor, had filed a civil suit for recovery of ₹38,89,674.14, along with 18% interest. The suit later became Civil Suit No. 153 of 2011.
Masyc Projects Pvt. Ltd. had initiated six arbitration proceedings relating to goods supplied to Bhushan Steel.
During CIRP, both creditors submitted their claims to the Resolution Professional. Varsha claimed ₹34,27,895, while Masyc claimed ₹31,30,67,354.
Initially, their disputed claims were admitted at a notional value of ₹1. However, in the Final List of Creditors dated 20 March 2018, the earlier note stating that liability was subject to the outcome of pending proceedings was removed. The claims continued to be shown at ₹1.
Tata Steel's Resolution Plan was approved by the CoC on 20 March 2018 and sanctioned by the NCLT on 15 May 2018 under Sections 30 and 31 of the IBC.
Despite this, Varsha's civil suit and Masyc's arbitration proceedings were allowed to continue, leading Tata Steel, as the successful resolution applicant, to approach the Supreme Court.
Judgment:
The Supreme Court allowed Tata Steel's appeals.
The Court held that:
1. Once a Resolution Plan is approved under Section 31(1) of the IBC, the claims dealt with by the Plan become final and binding.
2. The purpose of the clean slate principle is to ensure that the successful resolution applicant takes over the corporate debtor without being exposed to unforeseen or uncertain liabilities.
3. The ₹1 value assigned to Varsha's and Masyc's claims in the Final List was not intended to keep their claims alive until the pending litigation was decided. The Court found that the Final List had changed the position from a claim being subject to adjudication to a quantified ₹1 claim.
4. The Resolution Plan did not create a carve-out allowing the pending proceedings to continue. Instead, the Plan provided for the withdrawal, abatement, settlement or extinguishment of such proceedings.
5. Therefore, only claims which had crystallised and were determinable and quantifiable by the relevant stage were capable of being dealt with under the Plan. Pending claims which had not reached that stage could not survive after approval of the Plan.
The Court ultimately held that the pending civil suit and arbitration proceedings stood abated, waived, withdrawn or extinguished upon approval of the Resolution Plan.
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